Washington, D.C. - The National Center for Public Policy Research applauds President Bush's State of the Union proposal to change the tax treatment of health insurance.

Under current law, only employers receive a tax deduction for providing health insurance to their employees, and the deduction is unlimited. President Bush's proposal lets individuals who purchase health insurance have the same tax deduction. It also puts a limit on the tax deduction of $7,000 for an individual and $15,000 for a family.

"That is the best idea for health insurance since the enactment of health savings accounts," said NCPPR senior policy analyst David Hogberg. "This really helps level the playing field for the tax treatment of health insurance."

Presently the tax code favors employees receiving their health insurance through their employer. "That really puts individuals at a disadvantage," said Hogberg. "This change will help lower the cost for those people who purchase insurance on the individual market."

The proposal to limit the tax deduction also deserves praise. With the current unlimited tax deduction, employees have more incentive to demand higher cost insurance policies that cover every little health expense. This leads to higher demand for health care, which leads to higher health care costs. That, in turn, boosts costs for health insurance. "The limit on the tax deduction will reduce the incentive to buy expensive, wasteful policies," said Hogberg. "That will result in lower health insurance costs for everyone."

Hogberg also disagrees with the criticism of Bush's proposal coming from some quarters of Congress. Congressman Charles Rangel (D-NY) said, "This is a dangerous policy that ultimately shifts cost and risk from employers to employees and could result in a higher number of uninsured." Congressman Pete Stark (D-CA), said, "Under the guise of tax breaks, the president is pursuing a policy designed to destroy the employer-based health care system through which 160 million people receive coverage."

"In fact, Bush's proposals would help stem the decline in employer-provided coverage," said Hogberg. "The cap on the deduction will help lower health insurance costs, making it easier for employers to provide coverage." Hogberg also noted that the proposals are likely to reduce the number of uninsured. "Many people who are uninsured do not have access to employer-provided coverage. Giving the tax break to those without employer-based coverage will make it easier for them to afford health insurance."

"Overall, Bush's proposal is a big step in the right direction," said Hogberg.

The National Center for Public Policy Research is a non-partisan, non-profit educational foundation established in 1982 and based in Washington, D.C.